Estate Planning: Charitable Giving as Part of Your Legacy

Financial education Web site Minyanville.com today offers an overview of ten ways to give, to be implemented within an overall estate plan, some simple, some more complex to - in their words - "achieve both [your] financial and charitable goals. Whether you’re 20, 40, 60 or 80, the Minyan[ville.com] credo of earn, save, spend and give applies. I encourage you, no matter your age, to think about planning your legacy of goodwill and providing valuable lessons to your family through planned giving....

Here are ten options for deferred -- or planned -- gifts. It’s always best to select the option that matches your goals. Each of these options require a statement in your will (you have a will, don’t you?). Of course, all options should be explored with an estate planning attorney.

Type of gift: Bequest
Your goal: Defer a gift until after your lifetime.
How to make the gift: Name a charity in your will (designate a specific amount, percentage or share of the residue).
Benefits: Donation exempt from federal estate tax and control of your assets over your lifetime.

Type of gift: Living trust
Your goal: Make a revocable gift during your lifetime.
How to make the gift: Name a charity as the beneficiary of assets in a living trust.
Benefits: Control of the trust over your lifetime.

Type of gift: Gift of life insurance
Your goal: Make a large gift with little cost to yourself.
How to make the gift: Change ownership on a life insurance policy you no longer need.
Benefits: Current income tax deduction and possible future deductions through gifts to pay policy premium.

Type of gift: Outright gift of securities
Your goal: Avoid tax on capital gains.
How to make the gift: Contribute long-term appreciated stock or other securities.
Benefits: Immediate charitable deduction and avoidance of capital gains tax.

Type of gift: Gift of retirement assets
Your goal: Avoid the twofold taxation on IRAs or other employee benefit plans.
How to make the gift: Name a charity as the beneficiary of the remainder of the assets after your lifetime.
Benefits: Gift from the most highly taxed assets, leaving better assets for family.

Type of gift: Gift of real estate
Your goal: Make a gift of property no longer needed and generate an income tax deduction.
How to make the gift: Donate the property to a charity.
Benefits: Immediate income tax deduction and reduction or elimination of capital gains tax.

Type of gift: Retained life estate
Your goal: Give your personal residence or farm now, but continue to live there.
How to make the gift: Designate ownership of your home to a charity, but retain occupancy.
Benefits: Valuable charitable income tax deduction and lifetime use of residence.

Type of gift: Charitable remainder annuity trust
Your goal: Secure a fixed and often increased income.
How to make the gift: Create a charitable trust that pays you a set income annually.
Benefits: Immediate income tax deduction and fixed income for life, often at higher rate of return.

Type of gift: Charitable remainder unitrust trust
Your goal: Create a hedge against inflation over the long term.
How to make the gift: Create a trust that pays a fixed percentage of trust’s assets as revalued annually.
Benefits: Receive a variable income for life and an immediate income tax charitable deduction.

Type of gift: Charitable gift annuity
Your goal: Supplement income with steady payments that are partially tax-free.
How to make the gift: Establish a charitable gift annuity contract with a charity that pays a set amount for life.
Benefits: Current and future savings on income taxes and fixed payments for life for one or two individuals.

Type of gift: Charitable lead trust
Your goal: Reduce gift and estate taxes on assets you pass to heirs.
How to make the gift: Create a charitable trust that pays fixed or variable income for a specific term of years; principal is retained for heirs.
Benefits: Reduces your taxable estate and the property is kept by your family, often with reduced gift taxes."

What to Know About Hiring New Employees… And What to Avoid

What to Know About Hiring New Employees…And What to Avoid

By Jessica Hawthorne, Guest Poster

Due to the complexities of California employment laws, when the time arises to hire a new employee it’s a good idea to eliminate the guesswork.

Many large companies with skilled human resource personnel typically understand where the pitfalls lie in the hiring process. Smaller business owners may also have a solid grasp of the necessary hiring techniques, but grey areas still remain for both.

The hiring process involves three key areas – recruiting, interviewing, hiring.

Recruiting: Creating a job description is sometimes an overlooked facet of the hiring process. It will not only help supervisors more readily define what they are seeking in a new employee, but can later be used to show that person their areas of responsibility.

A thorough description can also be the basis for creating a job advertisement for newspapers, industry publications, professional journals, and online sites such as Craigslist. Don’t overlook an internal job posting as well.

Be careful to avoid any inappropriate terms or discriminating language when posting a job advertisement. The rule is don’t include references to race, sex, religion, age, medical condition, marital status, sexual orientation, and disability or any other protected class.

Below is an example of an unsuitable ad.

Gal Friday Needed: Community newspaper is seeking a woman to answer phones, greet visitors to the office with a smile, and handle faxes and incoming mail. Must possesses lady-like appearance and speak clear English.

This ad is sexist and ethnocentric and should not be used.

Interviewing: It’s always a good practice to conduct a preliminary interview by phone, providing one gives the applicant some advance notice. The phone interview serves as a screening process and will narrow the field of applicants.

Creating a test for applicants is a suitable action that will help provide an accurate measuring stick for a person’s job skills and aptitude. Beware that a reasonable accommodation must be given to a disabled person when they take the same test.

Preparing a core set of questions that will be used for all applicants is another suggested step to follow. Ideally, many of the questions are derived from the job description. Be sure to ask questions that elicit lengthy responses.

Below is an example of an inappropriate question.

"I see your last name is Gonzalez. Does that mean you speak Spanish and are comfortable interacting with Hispanic people?"

The question is discriminatory because its function is to determine the applicant’s national origin and ancestry.

Hiring: On the first day of work, have the new employee review and fill out all the legally required and company-related forms. Be prepared to explain.

To get a new employee properly acclimated, an orientation program is recommended so the person understands the job responsibilities and any safety procedures that accompany the position. Introduce them to the company handbook and review all important policies.

Neglect during the new employee training can lead to various problems, like this one below.

Inadequate training: An employee for a road repair company shows up for his first day of work and is immediately assigned to a crew that morning. No safety instructions are provided and the worker spills hot tar on his uncovered forearm, causing a severe burn that requires medical care.

If an employee suffers an injury that could have been avoided through proper safety training, the company may be liable.

Jessica Hawthorne is an employment attorney with CalBizCentral, a division of the California Chamber of Commerce. This column was excerpted from a series of five booklets called "What Every Manager Needs to Know About", now available from www.calbizcentral.com.

Dangers of Internet Legal Research: Misinformation Aplenty

A client recently was conducted some legal research on the Internet, and came across the following, which he then showed to me and asked me about:

Subject: Re: Closing down a california S-corp
Answered By: taxmama-ga on 31 Jan 2005 14:38 PST
Rated:
Dear Yarbles,

The State of California would like you to believe that you must file each back year and pay the annual $800 fee AND all the penalties and interest related to that fee. They also will want all the fees and penalties for not keeping up with the annual report of officers taht the Secretary of State requires. (That's a $20 fee if you file it on time; $250 penalty if you don't.)

However, under the Ralite case, where the owner of the corporation was permitted to walk away from all these liabilities, by simply doing nothing. Do NOT file the closure paperwork with the State Franchise Tax Board or Secretary of State. Do nothing.

You can read the particulars here. http://www.boe.ca.gov/legal/pdf/90_sbe_004.pdf

You may want to have your tax professional review the case and make sure that you qualify. In fact, they may be happy to see this for their files. It's a very valuable piece of information that most people don't seem to know.

Just be patient. The notices will stop. Someday.

Best wishes,

Your TaxMama-ga

Google Answers: Closing down a california S-corp

My response to the client, who had hoped this answer proved that dormant California corporations would be dissolved automatically and that the corporate veil could never be pierced to provide for personal liablity to the shareholders for California corporate tax obligations:

Dear [Client]:

1 – There is no indication that the answerer is an attorney or accountant. What are their qualifications to be giving legal or tax advice? There are reasons why attorneys and accountants have to meet certain educational, training, and licensing standards.

2 - The annual report fee referred to in the answer is actually $25, not $20.

3 – While not invalidating the law as precedent, it is worth nothing that the case refers to tax year 1980, and to a California code section that no longer even exists (R & T Code Section 25701(a)).

4 – The answerer does not claim the corp. will be dissolved automatically by the state, only that the back taxes won’t have to be paid.

MOST IMPORTANTLY, THOUGH…

5 - Contrary to what the answerer, who apparently did not read or understand the case, the shareholders of the corporation in the cited Ralite case were found personally liable and ordered to pay the franchise taxes. See paragraph 2 of page 29 of the case cited: “the shareholders are liable for Ralite’s [the corporation’s] tax.”

However, this result was because of fraudulent transfers by the shareholders; otherwise, the case does indeed provide that shareholders will not be personally liable for corporation franchise tax non-payment. But (A) without the assistance of an attorney and tax advisor, fraudulent transfers may inadverdently be made by shareholders closing down a corporate business and (B) it is possible California's legislature will change the law on this at some point. Until that time, it is true that many shareholders walk away from their corporations and allow them to become suspended and continue to accrue franchise taxes, penalties, and interest. This is not the proper or legal way to do things, however, and I believe the majority of business attorney or tax advisors would not routinely counsel a client to do this.

6 - Note that the person asking the question comments at the bottom of that they consulted their tax professional, and their tax advisor told them to pay the tax and dissolve the corporation properly.

7 - A tax clearance certificate is no longer required to dissolve a corporation, so there is little reason not to dissolve the corporation, to stop the tax clock from ticking, even if taxes are owed and cannot or will not be paid by the corporate shareholders.

This is a perfect example of the legal misinformation and half-truths that are all over the Internet and a good reason why you should take “advice” like this with a grain of salt and consider its (unknown) source, as well as the the fact that the law may have changed, or the one person's circumstances may not match yours....

John McCain, Republican for President, on the Estate Tax

Although U.S. Senator (Republican - Arizona) John McCain's has been criticized by conservatives in his party for his inconsistent support of President Bush's tax cuts, his recent no-new-taxes pledge and his prior Senate votes on the estate tax seem to indicate that as president he would be likely to preserve the status quo on the estate tax: in 2007, McCain voted to increase the estate tax exemption to $5 million and to reduce the maximum estate tax rate to 35%; and in 2006, McCain voted to permanently repeal the death tax and to make the Bush estate (and income) tax cuts permanent.

Source: OnTheIssues.Org: John McCain on Tax Reform

The conservative Club for Growth, which favor repeal of the estate tax, rated McCain's voting record 76 out of 100 for 2006 for pro-growth economic policies.

See also:

Barack Obama, Democrat for President, on the Estate Tax
Hillary Clinton, Democrat for President, on the Estate Tax
John McCain Official Site: McCain Tax Cut Plan

October 2008 update: McCain has clarified that he supports raising the estate tax exemption amount to $10 million for a husband and wife and cutting the tax rate on larger estate to 15 percent. He also supports lowering the federal corpoarte tax rate from 35 to 25 percent.

Barack Obama, Democrat for President, on the Estate Tax

U.S. Senator (Democrat - Illinois) and presidential candidate Barack Obama's view on the estate tax:

We have to stop pretending that all cuts are equivalent or that all tax increases are the same. Ending corporate subsidies is one thing; reducing health-care benefits to poor children is something else. At a time when ordinary families are feeling hit from all sides, the impulse to keep their taxes as low as possible is honorable. What is less honorable is the willingness of the rich to ride this anti-tax sentiment for their own purposes.

Nowhere has this confusion been more evident than in the debate surrounding the proposed repeal of the estate tax. As currently structured, a husband and wife can pass on $4 million without paying any estate tax. In 2009, this figure goes up to $7 million. The tax thus affects only the wealthiest one-third of 1% in 2009. Repealing the estate tax would cost $1 trillion, and it would be hard to find a tax cut that was less responsive to the needs of ordinary Americans or the long-term interests of the country.

From Obama's book, The Audacity of Hope, 2006, pp. 191-2.

In the Senate, Barack Obama has consistently voted against repealing or reducing most taxes, including the estate tax, and in favor of increasing most taxes, including the estate tax. Senator Obama, for example, voted no on increasing the estate tax exemption to $5 million and reducing the maximum estate tax rate to 35%, voted no on extending the sunset of the Bush estate tax and GST tax exemption increases (which lower the number of families affected by the estate tax), and voted no on permanently repealing what those who oppose it usually refer to as the death tax.

Source: OnTheIssues.Org: Barack Obama on Tax Reform

The conservative Club for Growth, which favors repeal of the estate tax, rated Obama's voting record 7 out of 100 for 2006 for pro-growth economic policies, and most liberal Senator overall for 2007 by the National Journal.

See also:

John McCain, Republican for President, on the Estate Tax
Hillary Clinton, Democrat for President, on the Estate Tax
Barack Obama Offical Site: Fiscal Issues

October 2008 update: Obama opposes repeal of the estate tax and supports repeal of, or allowing the expiration of in 2010, the Bush (estate and income) tax cuts. He supports one-time or short-term tax rebates for most individual taxpayers (and many filers who don't earn enough to pay federal income tax and pay only payroll taxes) and overall higher estate, payroll, income, and corporate taxes over the longer term.

In response to a question about raising taxes, Obama said that he intends to "spread the wealth around."

January 2009 post-election update: President-Elect Obama's Big Tax Plan by Bill Bischoff, SmartMoney's "Tax Guy":

$300 billion in tax cuts are probably on the way -- and soon.

Right after the election, I was virtually certain that upper-income individuals would face higher federal income tax bills as early as this year. And I didn’t see anything very good on the business tax horizon, either. But after two more months of horrifying economic data, it’s a whole new ball game.

Now, President-elect Obama is proposing a $775 billion economic stimulus package that does not appear to impose higher taxes on anybody or anything for 2009. Instead, it looks like we will immediately see some of the "middle-class tax cuts" Obama promised, plus some unanticipated business breaks too. All in all, these tax cuts could add up to $300 billion (or more) over the next two years....

February 2009 post-election update: Obama's Budget: Almost $1 Trillion in New Taxes Over Next 10 yrs, Starting 2011:

President Obama's budget proposes $989 billion in new taxes over the course of the next 10 years, starting fiscal year 2011, most of which are tax increases on individuals.

ABC News, February 26, 2009.

"George W. Bush" on Estate Planning

Because "between 100 and 200% of Americans don't have a will or an old testament"....

Interview Questions Employers Shouldn't Ask Job Applicants

SAN FRANCISCO (MarketWatch) -- "Why aren't you married yet?" "Would you join a church to get a job?" Those are just two examples of questions job seekers said hiring managers asked them in a job interview, according to a new survey of more than 3,000 job seekers and 1,000 hiring managers worldwide by Development Dimensions International and Monster, the career-resource arm of Monster Worldwide.
Others included "Are you happy in your relationship?" "Who is your favorite Beatle?" and "What is your perception of the painting in our lobby?"

The survey findings are "a wake-up call for organizations that this is happening behind closed doors when the applicant is face to face with their potential boss," said Scott Erker, DDI's senior vice president of selection solutions. DDI is a human-resource consulting company in Pittsburgh.

Questions pertaining to family status or religion can easily venture into illegal territory under antidiscrimination laws. That means potentially exposing the company to litigation -- and hindering the firm's efforts to find talented workers....

Don't ask, don't tell: Questions employers shouldn't ask -- and job seekers should avoid answering, Andrea Coombes, CBS Marketwatch, January 28, 2008